Social Media Pokes Around With IPOs
SCOTT SIMON, host:
This is WEEKEND EDITION from NPR News. Im Scott Simon.
This week, the online coupon provider Groupon and music streaming site Pandora announced they're going to be going public. These announcements come after the successful IPO - or Initial Public Stock Offering - of the business social networking site LinkedIn just a couple of weeks ago. Other social media companies are reportedly interested in going public now because of the money they see other companies earning.
We're joined now by Beverly Macy, marketing executive. She teaches social media marketing at the UCLA Business and Management Extension Program. She joins us from the studios of NPR West.
Thanks so much for being with us.
Professor BEVERLY MACY (Social Media Marketing, Business and Management Extension Program, UCLA): My pleasure.
SIMON: And why are these companies earning all this money?
Prof. MACY: Well, they're fundamentally good businesses and theyve got a worldwide stage in which to operate. And they're also capitalizing on things that matter to people. In the case of Groupon, everybody loves a deal so they're capitalizing on that.
SIMON: Well, a company like LinkedIn had its IPO a couple of weeks ago, we mentioned, is reportedly now worth billions of dollars. But they actually earn less than $10 million last year. Now thats not to be sniffed at but what makes them worth billions, when they have only earned a little under $10 million so far?
Prof. MACY: Great question. There's kind of two camps. There's the people scratching their heads, saying that kind of thing and are we repeating a bubble. And then there's the new group that says maybe we're in a boom, maybe there really is something to the networking effect that we've all been kind of part of, watching Facebook get as big as it has.
And LinkedIn is interesting because they actually cater to a very high demographic: well-educated, earning capacity is high; it's a lot of business-to-business; the advertising, et cetera, is really slated to be quite meaningful. And theyve done some smart things, so we'll see. It's a will-see story.
SIMON: I understand, for example, how a car company makes money or doesnt -they make cars. It is not clear to me how a company like LinkedIn makes money.
Prof. MACY: Well, right now it's primarily in subscriptions to the higher premiums that LinkedIn offers, as well as advertising. And thats really the revenue model. They are working on other things and they will get there. But thats primarily what it is - it's a sponsored-subscription model.
SIMON: It's an advertising medium like...
Prof. MACY: Like a magazine.
Prof. MACY: Exactly.
SIMON: Now, I gather from what youve written before you dont figure that this is a bubble. And we should explain that in the 1990s, companies paid millions for anything with a dotcom after it. And a lot of these companies went bust.
Prof. MACY: It's not a bubble yet. So LinkedIn, even though the numbers are not where they're hoping they're going to be shortly, they are a fundamentally good business.
Groupon is often called the fastest-growing company in history and is making money. And the rest of the agenda, if you will - Zynga and Facebook and Twitter - are all on deck to do quite well, revenue and profit-wise.
So thats what will separate this from the dotcom era.
SIMON: And what does it say about the U.S. economy, what does it say about the world economy, that U.S. car manufactures - which make hard goods - need federal intervention, but companies that seem to exist mostly on potential earnings make this kind of money?
Prof. MACY: Fascinating, isnt it? I think we are in a very interesting globally-connected world. People are seeing a lot of money being dangled in front of them. Let's hope that it all lives up to the hype.
SIMON: Beverly Macy, author of "The Power of Real-Time Social Media Marketing," thanks so much for being with us.
Prof. MACY: Thank you.
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